Scribd Logo
Upload

Welcome to Scribd!

  • 2019-11-14 09-53

    Uploaded by

    api-486295966
    35 views10 pages

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    35 views10 pages

    2019-11-14 09-53

    Uploaded by

    api-486295966

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 10
    write up onlin Math 1030 Group Project: Finance ‘To own or not to own, that is the question. (You must complete this project with at least 1 other person) Introduction: In our in-class activity, we learned that compound interest over a long period of time can have a large impact on paying offa loan. Many students reach the conclusion that they do not want to own a home. But there is another side to home ownership besides the cost of the mortgage. In this project, you will compare the long-term results of purchasing a home orrenting. According to an article by Michael Bluejay in Business Week, the long term real estate appreciation rate in the U.S. is 3.4%. While appreciation rates vary from place to place, we will use 3.4% appreciation throughout this project. Betty the Buyer vs. Randy the Renter Betty and Randy are the same age and both went to college, graduating with bachelor’s degrees and getting jobs with similar pay. The difference lies in the fact that Betty made the choice to buy a home, while Randy decided he would rent. Beginning at age 25, when Betty purchased her first home, let’s compare their finances. Betty and Randy at age 25 Betty buys a starter home for $160,000. She makes a 10% down payment (borrowing the remaining 90%) and gets a 30-year mortgage. Her interest rate is 4.875%. 1, Calculate Betty's monthly house payment, showing vour work. Be sure you take the down payment into account in your loan amount. \Wwd.o0p - 14, 190 = 144,000 : aaee 144,002 A(t ir sens \ PAD4F “Tr 2, Assuming she made 12 mortgage payments and including her down payment, what did Betty pay for housing this year? 3. Assuming Betty continues to make the payment above, how much will she pay over 5 years? wl, 413.0 Randy rents a house that has the same market value as Betty's. His landlord has already : paid off the house and charges Randy 75% of the amount that Betty is paying each month on her mortgage. Randy must also put down a security deposit of $1000 before moving in. 4. What will be Randy's monthly rent payment? 5. Assuming Randy made 12 rent payments and including the security deposit, what did he pay for housing this year? 392%.0' 6. How much will he pay over 5 years? 7. How much more has Betty spent on housing during the 5 years? ws B0. _ Betty and Randy at age 30 Betty and Randy have both married and each have a couple of kids. They need more space! Betty plans to sell her house, but remember she stil has that mortgage and it must be paid off. To figure out how much the payoff is consider the loan from the banks point of view. ‘They could have invested the principal and earned interest on it. So after 5 years with interested compounded monthly the bank would have earned: 4=n (102) & wo? ! HBAS, v4, o00( 1 SH) \ eevee ie ‘And Betty has been making monthly payments for 5 years so she has paid a((1+s)"-1) eo & 9\ 094. Ho So her unpaid balance would be the difference of these two values: wstmame(1eEf = 8. Whats Betty's unpaid balance? we aor.ow (14 2A ) v the money she gets from the sale, 4 Betty will pay off the mortgage on her first home with Recall that che paid $160,000 for it S years ago. Using the national average home valve increase of 3.4% per year (this is an: growth modelt), what is the new value of Betty's home? Show your a waty* ges. vot ~) [need 10. Row much money does Betty have after she sellsher house and pays off the mortEAge? When Randy moves out of his rental house, the landlord keeps his security deposit (they always do). How much money does Randy take away from this rental? None! 111. Given Betty's earnings from the sale ofthe house, compare the amounts spent by she ‘and Randy over the last S years by looking atthe difference between their total Expenditures and total gains. Be sure to include Betty's down payment and Randy's ‘security deposit. Betty: gains - expenditures = 63. |\. BA WEF. olpavex A \ Randy: gains-expenditures= © - 36,243 +3323 | Moving on up! Betty buys a larger house for $250000. She again has a 30 year loan at 4.875% interest ‘The money she earned from the sale of her first home will be used as her down payment 12, Calculate Betty’s monthly house payment, showing your work. Be sure you take the down payment into account in your loan amount. 260,000 - Gre. 34 Ay? 09% vw | DAVAS rs 142,403 wi = A (lr 413, Assuming she made 12 mortgage payments, what did Betty pay for housing this year? Do not count the down payment this time because it was the earnings from selling her old house. wo sin)

    You might also like